tv Nightly Business Report PBS April 2, 2010 6:30pm-7:00pm EDT
>> susie: attending a college or university-- for many young americans, it's a rite of passage before crossing the finish line into adulthood. >> you don't notice how much it actually costs, until you look at books, room and board, tuition, everything. >> tom: the bottom line-- actually paying for that education can be daunting if you're not prepared. >> for me, cost is a very big issue. >> we'll try to get some financial aid, scholarships, grants. >> tom: tonight, getting ready for the higher cost of higher education. it's a "nightly business report" special edition. planning 101-- paying for college. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. the markets were closed today in honor of good friday. but, tom, there was still some important news came out. >> tom: there certainly was, susie. the first friday of the month-- the march employment report was released today. the labor department says 162,000 jobs were added last month. but the u.s. unemployment rate remains at 9.7% for the third straight month. >> things are looking a lot better. it's looking a lot more normal. we're starting to see a better
pick up in the employment reports. people are finding jobs and that's the first step. you've got to get a job before you can spend more money. >> tom: the 162,000 new jobs created in march is the best month in three years. about one in three of those jobs came thanks to uncle sam's hiring for the 2010 census. revised figures now show the economy has added jobs in three of the past five months. but the jobs picture is much different for high school graduates who never went to college. if you look at past five months the unemployment rate for this group has risen. it remains more than twice the rate compared to people with at least an undergraduate degree. now one key difference between working and not working clearly is education. robert reich was the labor secretary under president clinton. he is now at the u. of california at berkeley and author of "super capitalism" now in paperback. mister secretary, welcome back to "nightly business report." as you know, we've seen the government response targeted on jobs to be focused on tax breaks for instance, for small
businesses a temporary give-back of payroll tax for instance. would that government stimulus money be better spent in the classroom? >> look tom, financial capital is important in this nation. we bailed out wall street. but human capital, the skills and insights of our people over the long term are much, much more important to the standard of living in this country. and we are not bailing out our schools or our public universities. and we ought to be. >> tom: what is your suggestion to local policy makers, to university regents for instance that are setting budgets. where do they find the dollars to begin to invest in education like what you suggest? >> first of all, i think that the federal government ought to provide a interest-free loan to states and localities to make up for the shortfall in public education we've seen in the last year and a half. once the economy bounces back and tax receipts go back up again in states and also in
localities, that interest-free loan can be repaid. >> tom: mr. secretary, i appreciate your thoughts and your insights on the world of education and labor-- our guest this evening, from the university of california at berkeley, professor robert reich. >> thanks, tom. >> tom: to see more of my interview with robert reich and how having an education influences employment, visit our web site at "nightly business report" on pbs.org. >> susie: speaking of college-- sending your kids off to college-- it's a proud moment for any parent. but paying for it can be stressful. there's no escaping that college prices are rising. the costs continue to climb and it's not just tuition. students and their parents also have to come up with the money to pay for books, fees, room and board. scott gurvey takes a look at how families are coping with the higher costs of a higher education. ( singing ) >> reporter: meet the glee club at rutgers, the state university of new jersey. annual tuition here runs nearly $10,000.
room and board costs another $10,000. pricey as that is, it is much less than the $30,000 tuition charged at the leading private universities, an important factor for student paul maier. >> for me, cost is a very big issue. the fact that rutgers is a public institution was a very, really important thing in my decision. >> reporter: cost was not a big concern for frannie kenajian, a freshman who has her tuition in the bank. but that's only because her parents started saving while she was still in the maternity ward. >> my daughter ended up being there about five days. and into the third day my husband said i have to leave the hospital. i have to make my first investment. and he left the hospital and he came back and said we're starting to prepare for college. and it literally was the third day after birth. >> i'm really fortunate that my parents planned ahead like that, and i'm really happy that they did that. >> reporter: the cost of college has been rising at rates well above inflation for decades. factoring in tuition, fees, room and board-- costs at private four-year colleges are now rising nearly 2.5% a year.
public school costs are rising at an almost 4% rate. n.y.u. professor william baumol, says that's because the technological advances which improve productivity elsewhere are of little use in education. >> they are getting a handicraft product that it's not done on an assembly line, it's not done by robots. you're using human beings to grade exams, to write textbooks, to do all those things. >> reporter: that leaves universities to explore other means to control costs and to provide financial aid. and it leaves students like to pitch in themselves. >> i want to try to help my family pay for my education, so i'm working with the rutgers television, i'm doing other stuff on campus to try to raise my g.p.a. to try to get out of here as fast as possible. >> reporter: sandy baum of the college board says the trends on tuition are not encouraging.
>> college prices will continue to rise. what we know so far about colleges that have announced their increases for next year is that in many states there are going to be pretty big increases in public college tuition. private colleges are better positioned to try to keep those increases down. they'll remain more expensive than public colleges, but it's likely that they will have a smaller rate of increase in their prices. >> reporter: student chris pasi says he has never doubted the value of a college education and believes it is worthy of support today and tomorrow. >> i'm still figuring out exactly what i want to do but i can't... i can't believe how much i've learned and it's just a really great experience. so, of course, if i'm... when i'm older i will pay taxes to keep colleges running and hopefully lower tuition for kids. >> reporter: even with tuition costs rising, the demand for a
college degree has never been greater. the number of college applications keeps increasing, year after year. scott gurvey, "nightly business report," new york. >> susie: now deciding to go to college is only the first step. the next big decision is what kind of school you or your child wants to attend. your choices include private colleges, public universities, community college or online schools. as diane eastabrook reports, cost is a big consideration. >> reporter: at their kitchen table, greg ward and his dad, marty, thumb through a brochure from yale university. the high school senior and merit scholar is anxiously awaiting acceptance into the prestigious school this fall. ward's already gotten into the university of illinois, but he likes the idea of an ivy league education. >> it would definitely be a plus. i think just the opportunities it opens up in terms of me wanting to go to grad school definitely it would be helpful in terms of opening a lot of doors. >> reporter: greg's dad agrees, but points out yale costs about three times more than the u. of i. >> the money is one consideration.
you might say that you could look at four years of college with scholarship at illinois and the savings could easily pay for grad school somewhere. >> reporter: according to the college board, the average price of tuition this year at a state university is about $7,000. the average price at a private university is nearly four times that amount. a year's tuition at an on-line college like the university of phoenix is about $12,000. and a year at a local community college is about $2,500. public or private. community college versus on-line university. for many teens choosing a college is one of the most important decisions they'll make. but not every school is right for every student. chris long says sticker shock shouldn't keep a student from applying to the university of his or her choice. his internet firm cappex matches students to colleges. he says many expensive private schools offer hefty scholarships
as an incentive to students they want. >> for instance, you might have a sticker price of a private institution of about $30,000 a year. if you consider the merit aid that they might grant a student to go there, tuition can actually be cut by 30%, 40%, even 50%. so, the net cost to the student to go to a private institution might approach that of a public institution. >> reporter: students can also defray the cost of a bachelor's degree by getting basic classes at a community college and finishing up at a four-year university. david kalsbeek director of enrollment and management at depaul university in chicago says one in four students who graduates from depaul attend community college first. >> they are certainly prepared to succeed here. they have graduation rates at depaul that meet or exceed the graduation rates of students who enter depaul directly as traditional freshman right out of high school. >> reporter: experts say on-line colleges like the university of phoenix are a good option for students who have work or have family obligations. public schools typically offer larger class sizes and more programs. on the flip side, private
colleges offer smaller class sizes and often more interaction with instructors. to keep college costs down-- wherever you go-- experts say have a game plan. one that allows you to get the degree you want and gets you out in four years without going into overtime. diane eastabrook, "nightly business report," chicago. >> tom: still ahead on our special edition this evening-- applying for financial aid. we'll have advice on when you should do it and how you can avoid making common mistakes. >> susie: one popular way to save for college is to invest in a college savings fund, or so- called "529" programs. what are they? they're named after "section 529" of the internal revenue code, which created these savings plans in 1996. now every state has at least one plan available. and there are two types: savings plans-- these work like a 401(k) plan or ira: you invest your contribution in mutual funds or similar investments.
and then there are the pre-paid plans, they let you pre-pay all or part of the tuition for college. both plans offer special tax benefits. there are more than a hundred 529s, so choosing the right one takes a lot of homework. peter mazareas is an expert on college financing: he is chairman of the college savings foundation. my first question to him: how do you get started? >> well, the first step is, if you have a financial advisor, to talk with them. not, go on the web and there are some very good web sites that will break down 529 programs. the important point is to save early, save often, and establish a systematic, automatic payroll deduction or direct deposit account in a 529 because over time, whether it's $50, $100, that will accumulate. >> susie: as parents and students are doing the research, what should they be looking at?
what is the most important issue in choosing's fund? >> the most important issue is what their goal and risk tolerance and how and where they want to invest their money. 529s are not all the same. different states have different regulations and different rules different investment options, different fees and also different performance results. they need to do their research and make decisions based upon what their own personal situation is. >> susie: petery know, some people think the easiest thing to do is select the 529 that's offered in their state. when does it make sense to choose a fund outside of your home state? >> look at the tax deduction, and the fees involved in the program, as well as the investment options and the performance. there are some very good states with tax deductions that perform well and have flexible rules and regulations. >> susie: so it's important to shop around. >> it's very important to compare the features based upon your goals because an in-state
tax deduction may or may not be worth taking if the performance is subpar or the fees are very high. so a smart consumer would hop around. >> susie: so how the money is invested is pretty crucial. people are nervous when it comes to saving for college. how do you go about choosing the right investment strategy for your fund? >> people should look at their risk tolerance level and make a determination of how much risk they can tolerate. if they are child is closer to college, it should be less risk. within 529s there are all sorts of investment options to meet the needs of all investors. there's 100% qipt options, as well as cash, c.d.s, money market plans and stable value funds. so the driving decision should be their risk tolerance and she then they can find an appropriate investment within most 529 programs. >> susie: which should someone open up an account, as soon as the kid is borne or should they wait a couple of years?
>> they should open up their account as soon as possible and contribute as often as possible. simply because the time value of money, and the growth over the long run. even if their children are in high school or even in college, they should have a 529 account because if it's in a savings account or money market fund outside the of 529, you'll be paying taxes. if it's in the 529, it will be tax free. >> susie: who are 529s good for? >> 529s are good for everyone, including young children, adults even. it can be used for education at any age for retraining, but principally, frankly, it's for younger children that have a longtime horizon for investing in college. however, it's not limited to just children. it could be used for graduate school. it could be use for retraining for all ages. >> susie: you know, peter, some people don't sign up for a 529 because they assume that they won't be able to get financial
aid. is that the case? >> that is not the kansas. that's a big misconception. people will not get penalized if they save in the 529 or outside of a 529 because financial aid is income-drifep not savings driven. >> susie: what do you think is the biggest mistake people make when it comes to 529s. >> the biggest mestake is they don't rebalance and monitor the investment. they need to look at them every year and make a determination based upon their risk tolerance and the time horizons they have for their children to attend college. the closer to college, that want to rebalance appropriately, to minimize a downside risk. >> susie: peter, thank you so much for your time. >> thank you, my pleasure. >> we've made all the sacrifices all through the 12 years to send her to the right schools, to make her study, to get the education and scores, to get the scholarships. i would hate for her to start owing $100,000. >> i don't want my kids to graduate from college in debt.
>> tom: borrowing money for college is sometimes viewed as a last resort, as those moms just said. yet with tuition rising and many americans still unemployed, more and more students are financing their education with loans. anna olson takes a look. >> reporter: at t.c. williams high school in alexandria, virginia, the students come here-- to the college and career center-- to talk strategy. >> did you hear back from any of the colleges other than mary washington? >> reporter: choosing a college is their first challenge. paying the bill is another problem altogether. >> i'm ready for it. if i have to, then sure, why not. >> reporter: senior farishta boura says she's willing to take out loans to pay for pricey george washington university. >> knowledge is something that i can invest in, and never lose money on. >> reporter: her classmate haset solomon feels the same way. >> i have to finance my education somehow. my parents won't be able to pay for it. so it's my education, my responsibility. >> reporter: two-thirds of undergraduates borrow money for college, and paying tuition this year may be especially tough. a record number of students in the u.s. are already taking out
government loans, and in the 2008-2009 school year, they borrowed 25% more than the year before. sarah bauder is the financial aid director at the university of maryland, where the number of students filing for financial aid has increased sharply. >> the low income families have always filed. it's these high income families that have either lost a job or are thinking they may lose a job, so they're filing and they're asking for loans. >> reporter: bauder doesn't encourage student debt, but she says loans aren't a bad idea if they're managed properly. >> good debt is education, a mortgage, that is where the investment is actually growing for you. that in the years to come, because you invested in yourself, it's going to pay off at a higher return. >> reporter: still, it's important to note courts are reluctant to discharge loans, even in bankruptcy. for students looking to borrow money, financial aid counselors recommend starting with federal stafford loans, because they have low, fixed interest rates, and repayment doesn't begin
until six months after graduation. for parents, federal plus loans are available with a fixed interest rate of about 8%. repayment starts 60 days after the final check is disbursed. if students still need help filling the gaps, they can apply for private loans, which may have higher, variable interest rates. they're also harder to get these days. many lenders shut their doors, or tightened borrowing requirements during the recession. other options include federal perkins loans for low-income families, and peer-to-peer loans, where the lender decides the interest rate and repayment terms. whichever option students choose, bauder says it's important for them to be informed. >> the information and the knowledge base does change behavior. students start to think about what they're doing and, "do i really need this loan? or do i need that much?" and "what can i cut back on?" >> reporter: senior jacie henderson is already asking those questions. she says enrolling in community college next year will help her avoid debt and give her more freedom later on. >> i know that i can go out and
get that job that i want, and hopefully within a couple of years after that, put a down payment on a house. >> reporter: still, henderson may be an exception to a growing trend. experts say the amount of students with loans will continue to rise each year. anna olson, "nightly business report," washington. >> susie: a big question on the minds of many parents is when do you start saving and how much should you put away each month? jeff yastine crunched the numbers for us. >> reporter: so you need to save for your child's college education. i have a three-year old at home, i'm facing the same challenge. and the question is how much money do i need, just 15 short years away? the answer depends. i could send him to a public school, like my alma mater, the university of florida? ♪ or a private school? say harvard. ♪
let's look at some basic-- very basic-- assumptions. let's take the cost of college for a public four-year in-state university, room and board, and all the rest. that's about $15,000 a year. but the most recent annual cost increase was 6.5%. by 2025, when my son-- currently age three-- is ready for school, then we're talking about $36,000. that's for one year. and for four years? then if you do the math, that works out to about $158,000. so what do i need to save, per month, if i wanted to pay the full amount out of pocket? again, my son, age three-- we're talking about $500 a month. let's suppose that he's age 10 right now, so i got eight years to go before he goes to a university. well, again, if you do the math- - right now, age 10-- then we
are talking about $680 a month. let's suppose that i haven't saved anything and i have four years to go before sending him to university, he's about 14 years old. well, again, age 14-- then the figure really jumps off this white board. it's about $1,600 a month. now veteran financial advisors like darran blake talk to their clients all the time about this kind of math. >> don't put off until tomorrow what you can do today really applies here. because all you do, when you put it off, is that you prolong the possibility of that money compounding and growing. so let's say you have $1 today, and 18 years form now when you child goes to college, it grows to $3. that extra $2 would not be there. they will have to come from your own pocket. so that's the goal here to avoid that happening. >> reporter: there's a lot that will determine whether that $2
will come from my pocket or not. you have investment returns. his choice of college, whether my son qualifies for financial aid, or wins a scholarship of some kind. all play a role on how much i may have to dig into my own pocket when he gets to campus. so the lesson for parents is the sooner you have a plan, the quicker you can start putting that plan and money into action. jeff yastine, "nightly business report," miami. >> tom: regardless of how much you've saved and how well you've prepared your finances for college costs. they can still be a very big expense. some parents and students think they don't qualify for financial aid, so they don't apply. our next guest says that's a costly mistake. she's donna rosato, senior writer at "money" magazine. >> whether you're headed for your first year of college or you're returning for another semester in school, you should apply for financial aid every year. even if you didn't qualify previously, you might be eligible if you or your family's financial circumstances changed. for example, you're likely to
get more aid if you have a sibling entering college or a parent who lost their job. there are several sources of financial aid for college. grants and scholarships are the best because the money is usually tax-free and never has to be repaid. there are also work-study programs and loans. to apply for financial aid, including grants, loans and work-study, you will need to fill out the free application for federal student aid, known as fafsa. it's free to submit and can be done online at www.fafsa.ed.gov. you can file your fafsa as soon as january and not later than june 30, though state and school aid deadlines are usually much earlier, so it's wise to file your fasfa by march 1. but it's never too late to qualify for federal aid. parents can apply for federal loans anytime during the school year. once you fill out the fafsa, you will receive financial aid award letters from the colleges listing the amount and types of financial aid in your financial aid package.
if you want to get an early estimate of what the government thinks you can afford to pay for your education, try finaid.org's financial aid estimation calculator. paying for school is a lot of work but the effort you put into finding the lowest cost options now will pay off in significant savings for years after graduation. i'm donna rosato. >> tom: that's "nightly business report" for friday april 2. i'm tom hudson. goodnight, everyone and have a great weekend. susie. >> susie: tom, have a great holiday. i'm susie gharib. goodnight, everyone. we hope to see all of you again monday night. "nightly business report" is made possible by: